Back at the Controls

Cheaper Options Put Fliers in Charge, Leaving the Airlines on the Defensive

Even when the economy rebounds and air travel returns to full throttle, one thing is certain: The nation's major airlines will have a hard time persuading business travelers to buy tickets without shopping around.

During the last two years, business travelers' need to economize has helped erode the long- sacrosanct distinction in pricing of business and leisure fares. Competition among Internet sites and the growth of low-fare carriers have given road warriors cheaper options for booking their travel.

Yet the largest carriers have been reluctant to commit to serious fare reform at a time when the industry is racking up billions in losses. Business travelers still bankroll the biggest chunk of its revenue, and the industry is holding out hope that the economy will return to the high-rolling years of the late 1990s. To be blunt: The carriers can't afford to let business fliers act too much like leisure travelers.

Business travelers are well aware of the wide disparity in fares. According to the American Express Business Travel Monitor, typical business fares in the second quarter were six times higher than typical discount fares offered to leisure travelers.

So it's not surprising that business travelers are becoming more like leisure travelers, buying more low-fare, nonrefundable coach tickets compared with typical full-price, unrestricted business fares.

"Our problem with revenue from business travelers is not that they're not flying, it's that they're paying less," said John Heimlich of the Air Transport Assn., the Washington-based airline trade organization. "They've gotten much better about searching for prices and booking farther ahead."

Corporate travelers say shopping for the best fares just makes good business sense.

"When an advance-purchase fare between New York and Atlanta averages $211 and I can get a last-minute fare at either $98 or $2,000, something's wrong," said Bob McGurk, chairman of the Assn. of Corporate Travel Executives' air fare reform initiative.

"The logic used to be that airlines would use a high price tag to hold a seat open until the last minute," McGurk said. That pricing model assumed that a last-minute seat would be worth the premium to whoever needed it on short notice, presumably business travelers with deep pockets.

"But now with the Internet," he said, "if you wait till the last minute, you might get a fare that is even lower than if you bought it in advance."

American Express Co. said low-fare and nonrefundable coach tickets represented 88% of flights booked by its corporate travel customers. Only 9% of flights were booked on full-fare, refundable coach tickets.

Suzi LeVine, director of product marketing at online travel agent Expedia.com, said the trend of business travelers buying leisure fares online is only about a year and a half old. "Before that," she said, "there was much more of a distinction between traditional business travelers and leisure travelers."

To combat this trend, the six largest airlines have begun implementing changes that will tighten the system and make leisure fares far less attractive to business travelers.

Each airline--American, United, Delta, Northwest, Continental and US Airways--has its variations. But, in general, passengers who have purchased or will purchase nonrefundable tickets after Aug. 30 for travel on or after Oct. 1 can change a ticket before the departure date, subject to a change fee and unspecified restrictions. The ticket has no value once the flight has departed. Passengers who purchase nonrefundable tickets for travel on or after Jan. 1 can stand by for alternative flights on their ticketed day of departure, subject to a $100 fee.

Kevin Iwamoto, president of the National Business Travel Assn., said in a statement after the airlines announced their policy changes that such moves "are going to increase corporations' travel costs dramatically."

By further polarizing business and leisure fares, the airlines that have adopted the restrictions could force business travelers to choose between flexibility and affordability, but not without reason.

According to the Airfare Reform White Paper, issued by the Assn. of Corporate Travel Executives, some airline executives believe that when the economy strengthens, business travelers will return to the freer spending of the late '90s and that dramatic fare reform might leave them with a less loyal clientele and thus open to sabotage by competitors.

"The conventional wisdom of airlines is that you cannot cultivate business travel," said Michael Hall, global travel manager for Milwaukee-based Johnson Controls Inc. The belief is that there is only a finite number of business travelers and that "all you can do is take passengers away from someone else."

But Hall sees Web fares as a way the airlines could encourage more business travel with prices that would make it attractive to send more employees to conventions and seminars, for example.